Move here! The most untaxing states for retirees

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Retirees & Taxes

If you plan to relocate to another state when you retire, climate, culture and cost of living no doubt top your list of selection criteria. Taxes have even greater implications for most seniors, however.

Each state has its own set of rules for taxing ordinary income, retirement income, real estate, inherited property and estates.

"There is a tendency for retirees to think about moving to a state that doesn't have a personal income tax, and that's a good place to start," said Kathleen Thies, state tax analyst for tax services firm CCH, in Riverwoods, Ill. "But when you sit down and do the math, it's not always the best answer for every taxpayer. Those states need to make money somewhere, so they've usually got higher sales or property taxes."

That's why only three (Alaska, Nevada and Wyoming) of the seven non-income-tax states are on our list of top tax-friendly states for retirees. Florida, South Dakota, Texas and Washington did not make the cut.

There is no definitive ranking for the most tax-friendly states for retired people. Much depends on how your income is derived.

When you're no longer collecting wages, your personal income tax rate "might not be as big of a factor as it was when you were a wage-earner," Thies said. In the Golden Years, taxes on real estate and pension plans may be more significant.

As such, our top 10 tax-friendly states for seniors are listed in alphabetical order, rather than attempting to rank them based on tax policy.

Nonetheless, the states on our list are clear front-runners in initiating tax policy that helps to attract and retain baby boomers. They were culled from data collected from CCH, the Tax Foundation, state revenue departments, retirementliving.com and the Federation of Tax Administrators. (Property tax rates, compiled by the Tax Foundation using Census Bureau data, are through 2011 and reflect the mean property tax as a percentage of mean home value.)